Informational Barriers to Management Practice Adoption
RCTClinical Trial
Firms frequently fail to adopt highly profitable, standard operational management practices because plant owners either lack knowledge of the practices' existence or possess incorrect beliefs regarding their cost-benefit profitability.
Picture this
Imagine driving a car with a broken dashboard gauge. A driver does not refill low engine oil because the driver assumes the car is running fine, or does not realize oil filters exist. Once a technician points out the filter and demonstrates how clean oil prevents total engine breakdown, the driver adopts regular maintenance routines.
What the evidence says
Prior to intervention, uncommon management practices had a 98.5% non-adoption rate, driven by lack of awareness (64.0%) and incorrect profitability beliefs (30.9%). Providing management information decreased uncommon practice non-adoption by 35.3 percentage points after 9 months.
- Who was studied
- 28 plants across 17 large, family-owned cotton textile firms in Tarapur and Umbergaon near Mumbai, India (averaging 273 employees and $7.45 million in annual sales per firm).
- How
- Randomized Controlled Trial (RCT) featuring 11 treatment firms (14 plants receiving 5 months of management consulting) and 6 control firms (6 plants receiving 1 month of diagnostic consulting).
What to do
1. Conduct an operational audit of factory processes by implementing daily tracking logs for quality defects and machine downtime to identify unmeasured operational losses.
From the source
"Our results suggest that informational barriers were the primary factor explaining this lack of adoption."
541 Management in India QJE.pdf